CIT vs. Tulsyan NEC (Supreme Court)

S. 115JAA MAT credit to be set off before computing advance-tax shortfall and liability for s. 234B/C interest

S. 115JAA inserted by FA 1997 w.e.f. 1.4.1997 provides that when tax is paid u/s 115JA or 115JB, a tax credit being the difference of the tax paid u/s 115JA/115JB and the tax payable under the normal provisions of the Act shall be allowed as set-off in the subsequent year when tax becomes payable under the normal provisions of the Act. The AO, in computing the tax under the normal provisions of the Act, took the view that though MAT credit was available, the same could not be deducted whilst computing the liability to pay advance tax and interest u/s 234B & 234C. The High Court disagreed with the view of the AO. On appeal by the department, HELD dismissing the appeal:

(i) The scheme of s. 115JA (1) and 115JAA shows that right to set-off the tax credit follows as a matter of course once the conditions of s. 115JAA are fulfilled. The grant of credit is not dependent upon determination by the AO except that the ultimate amount of tax credit to be allowed depends upon the determination of total income for the first assessment year. Accordingly, the assessee is entitled to take into account the set off while estimating its liability to pay advance tax. If this interpretation is not given, there will be absurdity;

(ii) The amendment to Explanation 1 to s. 234B by FA 2006 w.e.f. 1.4.2007 to provide that MAT credit u/s 115JAA shall be excluded while calculating advance-tax liability is to remove the immense hardship that would result if this was not done;

(iii) The fact that the Form & Rules provided for set off of MAT credit balance after computation of interest u/s 234B is irrelevant because it is directly contrary to a plain reading of s. 115JAA (4).